Bob Bronson is in the bearish camp. He argues that the “Permabulls are at it again — promoting the notion that a deep or sharp V-shaped recovery is well underway, using just reported Q1 GDP data for support.”

I don’t necessarily agree, but Bronson’s work is always interesting.

Bob’s beef is that the headline figure of 3.2% annualized growth was down 40+% from the Q4 growth rate of 5.6%. Hence, we see a sharp deceleration in the so-called economic recovery. Hardly what one would expect to see in a healthy robust post recession expansion.

And though Q1 was the third consecutive quarter of positive growth following three quarters of negative growth, this does not automatically mean we will have a balanced, V-shaped recovery, nor does it preclude a double dip recession.

Rather than focus on GDP, investors should pay attention to what Bob terms “the core business cycle” — below:

The second chart below illustrates the Q1 GDP update of our working model of the double double-dips we expect, followed by a range of possible similar shapes of what can be more broadly thought of as a very wide U-shaped trough, or \____/ , rather than even the upside-down square root sign that only a few economists are expecting, as compared to the deep and/or sharp V-shaped and eventually self-sustaining recovery that the current consensus of them expects.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Where’s growth that expands past the prior highs in economic activity to come from? What technological innovation is on the horizen that will allow us even more freedom from physical labor such that we can get even fatter and lazier? Oh, yeah, the iPad just came out. Never mind. I’d say a whole economic growth miracle can be predicated on just touch-screen technology. No need to even know how to type.

This “recovery” in economic activity just reflects that Armageddon, like the stock market, was always oversold. The long-term demographics mean these growth spurts are nothing more than the bounce of a nearly-dead rabbit.

It is basically showing that the gap between consumption and compensation has widened, accounting for the increased GDP numbers. The consumer has pretty much said “F*** IT! If I’m going to get shitcanned and foreclosed on anyway, might as well spend all my income and savings while I still can!” That would lead me to believe a correction is still likely. And if my inference on the reason behind it is true, that consumers are giving up hope on giving up their debt/consumption addiction and are going on one last bender before rehab and or death, then this could end up being one hell of a correction. That said, the stock market is clearly very resilient, once again, the market is not the same as the US economy.

Nice to see that the only reply you have to offer to the ones who don’t believe is ad hominem. Now, why would that be?

I still say a new recession (or a continuation of the old one, whatever NBER is going to decide how to classify it), or at least a stalling to close to Zero growth is likely to materialize later this year, perhaps as soon as in the second quarter, which would mean a blowing up of your V-shaped recovery and stellar earning growth dreams. I doubt you still will be here in this case, though.

There is a measurement bias in those numbers. The (false) basic assumption is “consumption cannot grow faster than income for extended periods”.

But a simple look at the long-term historical chart show that the YoY delta was sig higher for consumption nearly EVERY PERIOD from 2002 to 2006. So something is missing… and a closer look would show there are MANY missing pieces in the data measurements.

One of the biggest is that “personal income” misses ALL CAPITAL INCOME… which is just an enormous part of the total income picture as the highest income earners simply chose to income switch into different forms of capital income (stock, equity incentives, etc) for the tax preference.

Many of the silly economic points miss this bias and it is a bias that has dramatically increased since the 1990s. It explains or goes along way towards explaining the basic “negative savings” bias. I know many entrepreneurs who qualify as life-long negative savers (they went into debt to build companies) and they came out with a few $100M in “equity” appreciation. Which never hits the “personal income” stat, right?

That is a somewhat valid point. I would posit that compensation is only including the wages of the middle class “worker bee” and this class of people have been getting the shaft (once again) through bearing the brunt of this recession. It seems that those in power use these times to leverage their stronghold on the common man, claiming hard times, while cutting everybody else’s compensation and benefits and increasing “productivity.” Upper management says, Hey look, times are bad, you’re lucky you have a job. We’re going to have to make pay cuts and reduce benefits and we’re all going to have to work harder to stay alive. Meanwhile, they get a bonus for increasing the bottom line and productivity by enslaving the masses because they know the masses don’t have many other options at this time and they have a mortgage to pay and kids to feed.

Those entrepreneurs, protected members of the upper class and upper management, or the Masters of the Universe still seem to be doing fine. The large middle class however is not. This is why the credit bubble was enabled in the first place. The disparity became too much to sustain the charade and keep the cash flowing to those up top, so they had to come up with new methods to goose consumption without destroying their way of life, thus extending credit to everyone under the sun to keep the top line pegged.

I would wager that the majority of the 70% consumer economy was being fueled by the middle class, not those elite “high income earners” who plowed savings into business investments. The collective J6P worker bee is the one driving the bus off the cliff. This is obvious by the simple mathematics of a bell curve distribution of the earnings. The outliers are the high wage earners and those in the middle of the curve greatly outnumber them. Humans have basic needs and wants that are not directly extrapolated to creating correspondingly higher levels of consumption when attaining higher levels of income. The larger number of people in the middle of the curve multiplied by the basic necessary consumption level far outweighs the outliers’ consumption contribution. Your argument of the savings rate being biased down due to many entrepreneurial types is probably highly offset by the highly compensated outliers saving a much higher percentage than the majority worker bees who are just trying to stay alive.

As a caveat, i do see large, well managed companies “retooling” and becoming more efficient through this recession. The collective pain borne by the working class adds to the bottom line of these companies. Just make sure that the inputs into revenue don’t rely heavily upon worker wages that are remaining stagnant and/or disappearing. Focus on those companies with revenues that come from things that cannot be foregone, or are driven by institutional and B2B demand. If you do so, you will have an increased or stable top line revenue – a decreased COGS, and should end up with good earnings.

If you want to make America a better place for the lower-middle-class… just fix the tax preferences that allow the top 400 income earners to pay 17% avg tax rate on $500M in avg income. Its all about the regressive payroll tax (12.4% capped at 100k).

But otherwise… most of the lower-middle-class worker bees dont know what a library looks like. Education pays. Education pays huge. The library is empty. Its hard to have too much sympathy.

Most people are simply not working that hard (see TV, bars, sports ratings, casinos, etc).

If you want better equality simply fix the tax system (12.4% payroll tax, capped at 100k?).

Most of the dis-enfranchised dont invest very much in education or training or themselves. Hard to have sympathy. Bars, sporting events, casinos are full. Libraries are empty. No interest in studying or working hard. Opportunity seems rampant for those who apply diligent effort.

The tax system is skewed badly based upon income taxes. However, there are very educated and diligent middle class people left out in the cold due to recent circumstances. Ridiculous student loans to pay back with reduced compensation or job opportunities to recent graduates comes to mind. *I am not in this predicament, as I worked my way through school, however I know many of my time who worked and studied for 7+ years on the promise of a good job upon graduation to pay back those expenses that have not seen their efforts come to fruition. Not to say that with more hard work and training and the right employment circumstances, they cannot overcome this. However, there are significant hurdles to overcome that were not necessarily present in the recent past.

I know the arguments I proffer have an underlying stance of “class warfare,” however I think it is inherent in the arguments considering the system is based upon capital, and its application to produce beneficial goods and services. If you start out with no capital, you must work to produce goods and services for the benefit of yourself as well as the greater benefit of those who outlayed the capital and took on the risk when they created their business. Saving extra capital and learning and training is the way to overcome this barrier, however, the cost of learning specialized skills has begun to overcome the benefits afforded.

Stats wise, the income vs. expenditure problem is still valid. Especially in the light of pointing out the uneducated and lazy masses who want the benefits of capitalism without going to the library or paying their dues. These are the crux of the problem in that they expect to live a life beyond their means and worth, and utilized credit to try to do so, while many who do try to educate themselves and work hard everyday are left in flux to do much of the work and pay for the transgressions of society as a whole. When the majority lives beyond their means (stupidly so) it creates a problem for capitalism in that the consumption based society must be re-equalized eventually. Thus our opinions that the recovery is not quite as sustainable as currently perceived and we are not yet out of the woods.

I guess my point is, the J6P driving the bus off the cliff out of their own stupidity, as well as the elite allowing them to do so while sucking the profits along the way are simultaneously at fault in an asymbiotic systemic relationship that will lead to the destruction as a whole; while those who do not participate, such as the ethical entrepreneur or dedicated business owner, and the educated working class striver who fills relevant needs of society are brought down as well through collateral damage to the system.

Some things are a little tough right now. Thats what a deep recession looks like. Its natural. Its healthy.

We’ve only been in post-recession “tough times” for about 2 years… and there almost over. Most of your statements have the (typical) tone that this is some long-term problem.

It isnt. Things are fast returning back to normal. Large opportunities are here and right around the corner.

Take a step back. Every decade Americans are increasing wealth enormously. If anything we have TOO MUCH wealth. Nothing to do with our money but entertainment, over eating, and giant SUVs. This resumes from here… strong recovery.

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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